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Gold is mixed against various
currencies today but is higher in euros after the euro has fallen on concerns
that European leaders gathering for the summit in Brussels may not be able to
resolve the Eurozone’s debt crisis and prevent contagion in the
financial system.

Asian indices were mixed and
European indices have snapped a two day advance, and commodities declined, on
signs economic growth is slowing in Europe and China. The Stoxx
Europe 600 Index slipped 0.4 percent as Ericsson AB lost the most in more
than two years and earnings missed analysts’ estimates. The FTSE has
fallen 0.35%. Futures on the Standard & Poor’s 500 Index slid 0.3
percent.

Gold and G10 Currencies Versus the US Dollar –
2011 YTD

An interesting analysis article on
gold by Reuters confirms massive and growing demand for physical gold in Asia
and the risk of dislocations and rapidly rising prices in the gold market due
to central bank demand.

The giant middle class populations
in Asia, especially China and India are buying physical gold bullion in
volume due to concerns about global growth, in order to protect themselves
from stubbornly high inflation and concerns about the declining value of
their respective paper currencies.

Gold demand in China alone is
expected to rise about 20% to near 700 tonnes this
year from 570 tonnes in 2010.

Official figures show inflation at
6.4% but real inflation is likely higher and the authorities are struggling
to tame annual inflation.

Gold and G10 Currencies Versus the US Dollar –
2011 YTD

The massive increase in demand from
Asia is sustainable. Especially in China where gold ownership was banned from
1950 to 2003 and therefore per capital consumption of gold is increasing from
a near zero base.

Besides this Asian demand, there is
also the continuing and growing central bank demand. Central banks were net
sellers for most of the last 30 years and became net buyers in 2010 due to
monetary and systemic concerns.

The analysis piece reports
something experts on the gold market have been saying for some time, which is
that “central banks have to tread lightly, as sizable purchases could
jolt the relatively small gold market.”

“Last year, global gold
supply, including mine production and scrap, stood at 4,108.2 tonnes, which translates into about $210 billion at
current price.”

Meanwhile, “the amount of
U.S. debt held by the public stood at $9.75 trillion by July 19, doubling
from five years earlier -- adding nearly $1 trillion a year, based on data
from the U.S. Treasury Department.”

Dong Tao, chief regional economist
at Credit Suisse said that "gold supply simply doesn't grow as fast as
China's foreign reserves. Only the increase in U.S. debt can match
that."

Central banks could raise gold
holdings marginally, he said, but sizeable purchases could cause an
“earthquake” in the market.

"We can buy whatever with our
money without causing price distortion, but a $2-trillion, $3-trillion
elephant will certainly cause distortion”, said Tao.

China has the world's biggest
foreign reserves, which stood at $3.2 trillion at the end of June. Gold
holdings of 1,054.1 tonnes make up just 1.6 percent
of its reserves, though China ranks sixth among the world's top official
holders of gold.

Some coverage of gold’s
record nominal highs in recent days suggested that gold’s rise in value
was due to investors “piling into” gold due to fears about the EU
and U.S. debt crisis. The phrase “piling in” suggests that rising
gold prices are due to speculative “hot money” and that therefore
prices would fall as quick when the speculative money decides to sell.

However, Asian and central bank
demand for physical gold bullion is not speculative rather it is smart money
which is passively diversifying and buying and holding for the long term.

SILVER Silver is trading at $39.84/oz,
€28.09/oz and £24.64/oz.

PLATINUM GROUP
METALS
Platinum is trading at $1,774.75/oz, palladium at
$794/oz and rhodium at $1,900/oz.

Mark O'Byrne is executive and research director of www.GoldCore.com which he founded in 2003.
GoldCore have become one of the leading gold brokers in the world and have over 4,000 clients in over 40 countries and with over $200 million in assets under management and storage.We offer mass affluent, HNW, UHNW and institutional investors including family offices, gold, silver, platinum and palladium bullion in London, Zurich, Singapore, Hong Kong, Dubai and Perth.